Why BNB Token is Facing Challenges and the Potential for a Short Squeeze
Traders in the perpetual futures market tied to the BNB token are leaning bearish as the embattled cryptocurrency faces a challenging environment on multiple fronts.
Data tracked by Coinglass show that open interest and volume-weighted funding rates in perpetual futures have slipped to -0.18%, the lowest since late April. This indicates that shorts, or positions that profit from a price drop, are dominant, and are willing to pay longs to keep their bearish bets open. Funding rates are charged every eight hours.
"BNB is being heavily shorted," says Huff Haus, co-founder of Pear Protocol, referring to the deeply negative funding rates.
The sentiment towards BNB has worsened due to the recent high-profile staff exits, inconsistencies related to BCH withdrawals from Binance.US, and the pending Department of Justice case against Binance's CEO Changpeng "CZ" Zhao. BNB is the token of the BNB ecosystem, which was created by Binance, and crypto traders generally link the token with the exchange's fortunes.
Binance, facing regulatory pressures worldwide, has recently laid off 1,000 or more employees. Three senior officials have also left their roles, citing CZ's handling of the DOJ investigation over possible money laundering as the reason for their exits.
Over the weekend, CZ tried to calm market nerves by stating that the recent layoffs were involuntary terminations and dismissing the reported layoff figure by the media as FUD (fear, uncertainty, and doubt).
"We are still hiring," CZ announced in a tweet on Saturday.
Despite this announcement, the market remains nervous, as evident from the deeply negative funding rates, with some observers fearing more bad news ahead.
The negative funding rate also reflects the uncertainty surrounding the recent U.S. court's ruling favoring Ripple and its potential impact on Binance's fight against the U.S. Securities and Exchange Commission. The ruling stated that XRP is not a security when offered to individuals through centralized exchanges but is treated as one when offered to institutional investors. In early June, the SEC charged Binance and Coinbase for offering unregistered securities over their platforms.
Potential for a Short Squeeze
A short squeeze refers to a rapid move higher driven by bears abandoning their bearish bets. For a short squeeze to occur, the market needs to have a higher-than-usual bearish activity, as is the case in BNB perpetual futures. In such situations, even a minor price bump can send short sellers running to square off their positions, which, in turn, drives prices further up.
According to Skew, a move above $265 could trigger some short covering.
"BNB looks weak as long as the price trades below $265. However, if it goes back above that level, I could see some illiquid short covering rally. Otherwise, the price may eventually drop below the monthly range low at $218," Skew tweeted.
At press time, BNB traded at $242, according to CoinDesk data.
